Proposed EU Directive on Corporate Sustainability Due Diligence :EU Committee of Legal Affairs proposed amendments to the Draft Directive : key changes

On the 7^th of November 2022, Lara Wolters, EU Parliament’s Committee of Legal Affairs released their report setting out proposed amendments to the Draft Directive: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://europa.pvda.nl/wp-content/uploads/sites/458/2022/11/due_diligence_report.pdf

In her tweets announcing the release of the Directive Ms Wolters expressed it was ’time for modern, responsible business that take people & plant seriously’ . The changes that are proposed stem from a wider- ranging consultation.

Ms Wolters  also states that she wants companies to proactively identify and address risks in the entire value chain but propose that they are only liable if they cause or contribute harm. Appropriate measures should include increasing the company’s leverage with responsible parties to seek or prevent or mitigate the impact.

Here are 10 key changes that business should be aware of:

1. The scope of the Directive is enlarged by reducing the thresholds of employees an turnover and extends to ‘employees in third party undertakings and which the company has entered into a vertical agreement in return for the payment of royalties’
2. The scope of high-impact sectors has also been extended, to include, for example the marketing and advertising of food beverages, extended coverage on tech activities and financial services.
3. More clarity is provided on environmental impacts to encompass impacts on the air, water, soil, biodiversity, animal welfare, climate mitigation and adaption and the transition to a circular economy.
4. The concept of ‘established business relationships’ has been removed on the basis that it would limit a company’s duty of care and instead it is proposed that compaies should be allowed to prioritise the most severe problems in their value chains.
5. Two new articles have been introduced – the first is to ensure that companies remedy harm that they cause, the second is to ensure that a more thorough and systemic consultation with stakeholders
6. There is also a proposal to better protect and listen to victims and improve their access to justice
7. Companies are expected to take responsibility for climate change
8. There has also been a recognition that SMEs will be affected by the requirements of the Directive whether or not they are in scope and measures are proposed to support SMEA and changes to contracts to ensure that companies passing on the burden to small suppliers.
9. The inclusion more expressly in the wording that companies should set up and carry out due diligence measures with respect to their products and services
10. Critically for companies, they will have to demonstrate that they have complied with the obligations under the Directive to mitigate risk of liability.

There is an additional proposed amendment that, not only is it in the interests of companies to protect human rights and due diligence but also to uphold good governance. This emphasis on good governance is key and whilst developing the BS25700 guidance standard on organisational responses to slavery, it was an element that was seen as critical to ensure that the risk of modern slavery is appropriately addressed by top management.  One of the proposed amendments includes a requirement that due diligence should also be carried out in relation to adverse good governance impacts

There are also proposed changes to director’s duties which I will cover in a follow up blog. If your company would like a bespoke briefing on potential liability arising from emergent legislation we have experience in training boards.

There is no doubt that once this proposed directive comes into force companies with interests and value chains in the European Union it will have an impact on how they identify their actual and potential environmental and human rights impacts.

The movement to encompass responsible business behaviour that is transparent and accountable is not subsiding and companies seeking to be relevant and resilient will have to start their journey to develop their due diligence frameworks.

At Ardea International we have experience in supporting companies developing their due diligence frameworks and embedding the appropriate policies and procedures. Do get in touch with me if you want to know more.